The American Dream is a fluid, extensive concept that neither can nor should be pinned down into a singular model. But there are motifs that proliferate in discussions of this dream since the phrase’s coinage in 1931, homeownership being one of them. While millennials are portrayed as habitual city-lovers, data suggests that instead, the generation is just waiting to make their move once the primary factors associated with home ownership – marriage and parenthood – fall into place. Thus, the oldest millennials are nearing the time to transfer, while the younger end waits for stability. On January 20, when Donald Trump was sworn into office, one of his first moves made this facet of the American Dream particularly difficult for millennials in the coming year.
The Trump administration’s Department of Housing and Urban Development suspended a 0.25% premium rate cut for loans backed by the Federal Housing Administration. Though this seems like a wonkish move for somebody who ran on a policy-averse campaign, there are substantive effects that will impact millennials. As Democratic Senator Sherrod Brown of Ohio pointed out on Twitter, this move will “Mak[e] it more expensive for Americans to buy their first homes”. Demographically, the first-time home buyer is usually young, though financial uncertainties have pushed the average age up to the upper end of millennials; regardless, realtor.com suggested in October that these first-time millennial buyers would “revolutionize the real estate market” this year. The rate cut, however, might have a dampening effect on millennial home purchases.
David Dayen of The Intercept explains the FHA’s function: “The FHA doesn’t make loans, but it enables borrowers with credit scores as low at 580 to purchase homes with low down payments (as little as 3.5 percent). In exchange, it collects mortgage insurance premiums, which it places in the Mutual Mortgage Insurance Fund (MMIF) to draw upon in case of default.” The monetary impact making the rounds has been a $500 increase over a year on a $200,000 mortgage, a non-inconsequential amount. If an extra $500 a year would be a prohibitive amount when considering purchasing a home, then those who use the FHA may think twice before making this important purchase. Based on the profile of the FHA’s patrons, a lot of these people could be millennials.
The realtor.com data suggest that 61% of first-time home buyers this year will be under the age of 35, but these prospective shoppers are not guaranteed to have the standard 20% down payment on hand when it comes time to buy. Instead, millennials in large metros have saved but fractions of what they need to make this down payment, so the FHA comes into play for that reason. In addition, CNN’s Kathryn Vasel noted that borrowers with lower credit scores are also attracted to the FHA. Millennials qualify for this descriptor, too, as their average credit score is 625, quite close to the 580 minimum for FHA eligibility. So on both counts, millennials seem ripe for utilizing the FHA,
Though the realtor data was optimistic about millennials entering the housing market, the trends have suggested otherwise. As they have been priced out of multiple metros, millennials have helped lead to the lowest percentage of home ownership since the data was tracked. While some economists actually suggest that home ownership is not the universal boon it is portrayed as, it is still one of the core tenants of the American Dream – a dream that, say a plurality of millennials, already does not apply to us. One of the first moves of this new administration has done little to assuage these fears.
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